Chapter 15 Safeguard measures

Chapter 15 Safeguard measures

Section 15.1 Introduction
(A) Scope of the Chapter
(B) The Policies of Safeguards
(1) Compensation and adjustment costs
(2) Restoring Competitiveness
(3) The safety valve Hypothesis
(4) The public choice/Contractarian Perspective
(A) Scope of the Chapter
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Distinction: how a nation can respond to fair trade practices and unfair trade
practices
SG measures are available under certain conditions to respond to fairly traded
imports
Prior to the Uruguay round: SG measures were governed only by GATT Article
XIX that specified the standards to be complied with
GATT members ignored the Article XIX standards and turned to other techniques
to protect domestic industries (voluntary export restraints and orderly market
agreements). Such arrangements were known as gray area measures. They
violated the standards of Article XIX, but nevertheless became government-togovernment agreements.
Proliferation of gray area measures was undermining the GATT commitments,
and their effects were discriminatory. Idea: gray area measures need to be
brought under GATT discipline.
The SG Agreement required that gray area measures be eliminated and
compliance with Article XIX standards achieved. Statistics: 1995 2007 : 159 SG
investigations were notified and 82 SG measures imposed.
SG Agreement adds substantial clarification and tightening to the rules and
generated interesting WTO cases.
The chapter also discusses measures that do not directly interfere in trade, but
nevertheless serve to aid firms or workers harmed by import competition.
Subsidies may help firms to adapt their product mix to competitive conditions and
may serve as a substitute for traditional SG measures. These measures are called
adjustment assistance
(B) Policies of SG (what is the logic of affording protection to domestic
industries?)

(1) Compensation and adjustment costs

The theory is that SG actions might serve to compensate those who suffer from trade
liberalization. Domestic producers of import-competiting products may find that they can
no longer compete successfully. Injured business and workers may argue that they have
been made to bear an undue proportion of the costs for societys general gains and the
government should help them adjust to the new situation. Analogy with the

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governmental obligation to compensate owners when property is taken for governmental

purposes.
(2) Restoring Competitiveness
SG measures will provide sick firms with an increase in profits enabling them to invest
in new technology and modern equipment that will later allow then to compete
successfully in the international market place. The industry will lower its costs of
production to the extent that protection will no longer be necessary
(3) The safety valve Hypothesis
Safety valves that relieve protectionist pressure (instead of legislated quotas, voluntary
restraint agreements) diverting it from the purely political arena, can be extremely useful.
(4) The public choice/Contractarian Perspective
Revocation of particular trade concessions benefits the domestic industry in the revoking
country, but hurts exporters abroad. The exporters will complain to their political officials
about the loss of market access. What is the political costs of the officials in the
revoking / exporting country?
Section 15.2: Rules and Procedures in SG cases
(A) WTO rules
(B) SG measures under US law
(A) WTO rules
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WTO members undertake SG measures according to their national laws on the

subject. Details of the national legislation vary considerably, but they are all
subject to the contraints imposed by the WTO SG Agreement.
GATT Article XIX: ideea

1. (a) If, as a result of unforeseen developments and of the effect of

the obligations incurred by a contracting party under this Agreement,
including tariff concessions, any product is being imported into the
territory of that contracting party in such increased quantities and under
such conditions as to cause or threaten serious injury to domestic
producers in that territory of like or directly competitive products, the
contracting party shall be free, in respect of such product, and to the
extent and for such time as may be necessary to prevent or remedy such
injury, to suspend the obligation in whole or in part or to withdraw or
modify the concession.

WTO Safeguards Agreement, Article 2.1

4 prerequisites of a SG measure:
o Imports in such increased quantities and under such conditions
o Cause / threaten
o Serious injury
o Domestic producers of like/directly competitive products
Differences between Article XIX and SG Agreement
o SG Agreement: increased imports in absolute or relative terms
o The omission in the SG Agreement: of any link between increased
quantities and unforeseen developments
Other requirements:

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o investigation by competent authorities

o public notice of investigation
o interested parties be given the opportunity to present their views &
respond to the submissions of others
o competent authorities: publish a report presenting and explaining their
findings
Serious injury = significant impairment in the position of a domestic industry
Threat of injury = treat clearly imminent as sown by facts and not based on mere
allegation, conjecture, or remote possibility
Domestic industry = producers as a whole of the like or directly competitive
product / producers who collectively account for a major proportion of the total
domestic production
Evaluating serious injury / threat: authorities need to evaluate all relevant factors
having a bearing on the domestic industry: market share, production, sales,
productivity, capacity utilization, profit & losses, employment
Remedy: SG measures may only be applied to the extent necessary to remedy or
prevent serious injury or to facilitate adjustment.
o Maximum duration: 4 years. If extended + 4 years = 8 years:
o SG in place for more than 1 year: must be progressively liberalized at
regular intervals
o If a SG measures is extended: it cannot be more restrictive during that
period than it was at the end of the initial period and it should continue to
be liberalized
o Any measure of more than 3 years must be reviewed at mid-term
o In applying a SG measure, a member must maintain a substantially
equivalent level of concessions as regards the affected Members ->
Compensation: any adequate measures may be agreed with the affected
Members -> If no agreement on compensation -> the affected Members
may suspend equivalent concessions and other obligations; However, this
latter right cannot be exercised during the first 3 years of the SG
application. This limitation encourages the use of short term SG
measures !

(B) SG measures under US law

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Trade Act 1974, Title II, Section 201 and subsequent.

Escape clause proceeding has several stages:
Petition to the ITC (domestic industry, President, US Trade Representative, the
Senate finance Committee, ITC)
ITC verifies the existence of the pre-requisites of a SG measure
Written submissions, testimony at ITC hearings, ITC decisions reviewable at the
Court of International Trade or (in some cases) Court of Appeals for the Federal
Circuit.
If the Commissioners make an affirmative determination (investigation and report
must be concluded within 6 months): recommend a remedy and pass the matter on
to the President who must act within 60 days.

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President can: (i) increase duties; (ii) impose quotas or tariff rate quotas; (iii) enter
into agreements with exporting countries.
Presient has large discretion to impose trade restrictions as he considers necessary
Idea: President considers a substantially broader range of interests than the ITC,
e.g. the right to consider the impact of relief upon consumers and competition,
burden on the economy of any comepsation that might be required, national
security.

Section 15.3 Critical issues in SG cases

Idea: these issue refer to the basic prerequisites for SG measures.
(A) Unforseen developments
US Lamb (AB, 2001)
- US imposed a definitive SG measures in a form of a tariff-rate quota on imports
of fresh, chilled and frozen lamb meat
- Panel concluded that the US failed to demonstrate as a matter of fact the existence
of unforeseen developments
- AB: examined the relationship between GATT 1994 Article XIX and the SG
Agreement, in particular whether Article XIX continues to impose obligations on
WTO members. The answer: affirmative. The two legal provisions must be read
harmoniously and as an inseparable package of rights and disciplines.
- Unforseen developments must be demonstrated as a matter of fact. When, where
and how this demonstration must occur? No express guidance in the Article XIX,
but:
o Demonstration must be made before the SG measure is imposed
o The demonstration of these circumstances must feature in the report of the
competent authorities
- In US lamb: no indication that the USITC addressed the issue of unforeseen
developments. The USITC does not demonstrate that the SG measure at issue
has been applied, inter alia, as a result of unforeseen developments.
- Conclusion: the existence of unforeseen developments is a pertinent issue of
fact and law and the published report of the competent authorities must contain a
finding or reasoned conclusion on unforeseen developments.
(B) Increased Imports
Argentina Footwear (AB, 2000)
- EC complained about the application of a SG measure on imports of foorwear by
Argentina
- Panel: the SG Agreement requires not only an increase (i.e., any increase) in
imports, but an increase in such quantities as to cause or threaten to cause
serious injury. The increase in imports must be judged in its full context, in
particular with regard to its rate and amount. The competent authorities are
required to consider trends in imports over the period of investigation, in
particular the steady and significant declines in imports beginning in 1994, as well
as sensitivity of the analysis to the particular end points of the investigation period
used.

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AB: the competent authorities must examine recent imports and not simply
trends during the past 5 years. The imports must have been SUDDEN and
RECENT.
AB Conclusion: the increase in imports must be recent enough, sudden enough,
sharp enough, and significant enough, both quantitatively and qualitatively, to
cause or threaten to cause serious injury.

(C) Industry definition

Idea: it is necessary to identify the domestic industry that competes with the imports
under investigation. GATT Article XIX and the SG Agreement look to the producers of
like or directly competitive products for this purpose.
Like products: several provisions in GATT, but the addition of the words directly
competitive suggest that the definition is more expansive/lager here.
US Lamb (AB, 2001)
- US acted inconsistenty with Article 4.1.(c) of the SG Agreement, because the
USITC defined the domestic industry as including input producers (growers and
feeders of live lamb) as producers.
- USITC explanation based on 2 criteria: (i) there was a continous line of
production from the raw to the processed product; (ii) there was a substantial
coincidence of economic interest between growers& feeders of live lambs, and
packers& breakers of lamb meat. This two-pronged test is applied as a matter of
practice in its evolution of its own case-law
- Article 4.1.(c) SG Agreement: domestic industry=producers of the like or directly
competitive products or those whose collective output of the like or directly
competitive products constitutes a major proportion of the total domestic
production of those products.
- Definition contains 2 elements: (i) producers; (ii) of the like or directly
competitive products. Thus, the definition focuses on a very specific group of
products.
- 2 steps: 1. to identify the like/directly competitive products; 2. to identify the
producers of these products
- AB: input products can be included in the definition of if they are likely or direct
competitive with the end-products.
(D) Serious Injury
Argentina Footwear (AB, 2000)
- Article 4.2(a) of the SG Agreement: in the investigation to determine whether
increased imports have caused or are threatening to cause serious injury [], the
competent authorities should evaluate all relevant factors of an objective and
quantifiable nature having a bearing on the situation of that industry, in particular,
[] the share of the domestic market taken by increased imports, changes in the
level of sales, production, productivity, capacity utilization, profits and losses, and
employment.

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Panel: examined whether all injury factors listed in the SG Agreement were
considered by Argentina. In addition, Panel examined whether the findings and
conclusions on serious injury were supported by evidence.
Panel: Since Argentina did not examine 2 of the factors listed (production
utilization and productivity), Argentinas investigation was not consistent with the
requirements of Article 4.1(a).
AB: SG Agreement requires that the competent authorities evaluated, at a
minimum, each of the factors listed in Article 4.2(a) as well as other factors
which are relevant to the situation of the domestic industry.
Argentina did not evaluate all factors
serious injury = significant overall impairment in the position of a domestic
industry.
The overall position of the domestic industry is evaluated in light of all the
relevant factors having a bearing on a situation of that industry. An evaluation of
each factor does not need to show that each such factor is declining. The overall
picture of the domestic industry needs to demonstrate the siginificant overall
impairment

(E) Causation
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US Section 201: increased imports must be a substantial cause of material

injury, with substantial cause defined as an important cause that is not less
than any other cause.
GATT Article XIX and SG Agreement: require simply that increased imports
cause of threaten to cause serious injury.
2 issues of reflection:
o A change in consumer tastes causes an increase in imports, while the
domestic industry declines.
o The domestic industry experiences a strike: domestic production
plummets, and imports skyrocket to fill the gap. The injury to domestic
producers and increase in imports are both the result of the strike.
Idea: economists see increased imports as an effect of a phenomenon, not a cause
for injury.

Argentina Footwear (AB, 2000)

- Article 4.2(b) of the SG Agreement: existence of a causal link between increased
imports and serious injury or threat thereof; and when factors other than imports
are causing injury to the domestic industry at the same time, such injury should
not be attributed to increased imports.
- Panel considered: (i) whether un upward trend in imports coincides with
downward trends in the other injury factors, and if not whether a reasoned
explanation is provided as to why nevertheless such data shows causation; (ii)
whether the conditions of competition in the Argentine footwear market
demonstrate on the basis of objective evidence, a causal link of the imports to nay
injury; and (iii) whether other relevant factors have been analyzed and the injury
caused by other factors has not been attributed to imports.

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Panel: the relationship between the movements in imports (volume and market
share) and the movements in injury factors must be central to a causation analysis
and determination. A coincidence with respect to the increase in omports and a
decline in injury factors should occur.
AB: upheld the Panels reasoning. Argentinas findings& conclusions regarding
causation were not adequately explained and supported by evidence.

US Lamb (AB, 2001)

- Panel: US acted inconsistently with Article 4.2(b) of the SG Agreement, because
the USITCs determination did not demonstrate the required link between
increased imports and threat of serious injury, since the determination did not
established that increased imports were by themselves a necessary and sufficient
cause of threat of serious injury, and in that the determination did not ensure that
treat of injury caused by other factors was not attributed to increased imports.
- AB: the SG Agreement does not require that increased imports be sufficient to
cause, or threaten to cause, serious injury. Nor does the SG Agreement require
that increased imports alone be capable of causing or threatening to cause,
serious injury.
- AB: focus on the effect of other factors. Injury from other factors should not be
attributed to increased imports.
- USITC identified 6 factors other than increased imports that allegedly contributed
to the situation of the domestic industry at the same time. The USITC
acknowledged that some of the factors were having some injurious effects, it did
not explain what these effects were, nor how these effects were separated from the
injurious effects of the increased imports. In the absence of a meaningful
explanation, it is impossible to determine whether the USITC properly separated
the injurious effects of the other factors from the injurious effects of the increased
imports. It is impossible to determine whether injury caused by these other factors
have been attributed to increased imports.
(F) Remedial Issues
Idea: is it permissible to apply an escape clause remedy on a basis other than MFN ?
Safeguard preferences for members of customs unions and free trade areas.
US Wheat gluten (AB, 2001)
- Panel: the US acted inconsistently with the with the SG Agreement, by excluding
imports from Canada from the application of safeguard measures (following a
separate and subsequent inquiry concerning whether imports from Canada
accounted for a substantial share of total imports and whether they contributed
substantially to the serious injury caused by total imports, after including
imports from all sources in the investigation
- AB: to include imports from all sources in the determination that increased
imports are causing serious injury, and then to exclude imports from one source
from the application of the measure, would be to give the phrase product being
imported a different meaning in Articles 2.1 and 2.2.

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AB: the US carried out a separate investigation, but it did not make any explicit
determination relating to increased imports, excluding imports from Canada.
The Panel did not find whether, as a general principle, a member of a FTA can
exclude imports from other members of that free trade area from the application
of a SG measure.

Section 15.4 Adjustment assistance

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The Department of Labor: program of trade-related adjustment for workers

Department of commerce, Economic Development Administration: administers a
program of technical assistance for firms and industries

US Commission on International Trade & Investment Policy (Williams Commission),

Report
- adjustment assistance is focused on particular firms/workers injured by increased
imports tariff relief/voluntary export restrictions benefit to all producers,
whether or not they have been injured.
- Adjustment assistance will impose direct costs in tax payers, but successful
program should offset a part/all of their costs
- adjustment assistance avoids (i) the adverse effects on costs of US-produced
goods, (ii) the restriction on access for those goods abroad; and (iii) the tensions
on US foreign relations that may arise when the escape clause is used or when
voluntary export restrictions are obtained.
- adjustment assistance is difficult to apply when the industry is so large that a
program of assistance may be an extraordinary high budgetary appropriation.
When the entire industry is hurt -> temporary import restrictions + maximum
adjustment assistance may be appropriate.
Former employees of Computer Science Corporation v. US Secretary of Labor

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